The Effects Of Independent Audit Committee Member Characteristics And Auditor Independence On Financial Restatements

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The Effects of Independent Audit Committee Member Characteristics and Auditor Independence on Financial Restatements

Author : Vineeta Divesh Sharma
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (776 download)

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Book Synopsis The Effects of Independent Audit Committee Member Characteristics and Auditor Independence on Financial Restatements by : Vineeta Divesh Sharma

Download or read book The Effects of Independent Audit Committee Member Characteristics and Auditor Independence on Financial Restatements written by Vineeta Divesh Sharma and published by . This book was released on 2006 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The U.S. Securities and Exchange Commission (SEC) continues to reform the corporate governance mechanisms in order to improve the quality of financial reporting and thus, enhance the confidence of investors in the stock market and in the accounting profession. Despite the efforts of the SEC, financial reporting scandals continue with record numbers of financial restatements documented by the General Accounting Office. A financial restatement is a correction of a previously misstated financial statement. There is a small volume of literature examining the effects of corporate governance mechanisms on financial restatements. The results of these studies however, are mixed and possibly explained by their narrow focus and omitted variables that could influence the effectiveness of audit committees. Consequently, this study examines the effects of independent audit committee member characteristics and auditor independence on financial restatements. Specifically, this study investigates the relationship between the likelihood of financial restatements and: (1) the expertise of the independent audit committee members, (2) the expertise and diligence of the independent audit committee members, (3) the reputation of the independent audit committee members, (4) the interaction effect of expertise, diligence and reputation, (5) the tenure of the independent audit committee members, and (6) the cash compensation paid to independent audit committee members. Prior studies have not investigated some of these variables or the interaction effects of independent audit committee member characteristics on financial restatements. This study also investigates the association between auditor independence and financial restatements. The SEC alleges that an increasing number of audit failures are due to the lack of auditor independence. One of the major sources of the lack of auditor independence is the auditor's economic dependency on the client. The provision of non-audit services increases the financial reliance of the auditor on the client. As a result, the auditor may become reluctant to raise issues with the preparation of the financial statements at the risk of foregoing the lucrative non-audit services fees. The SEC believes that longer audit firm tenure can also impair auditor independence and Section 203 of the Sarbanes-Oxley Act suggests periodic audit firm rotation. Therefore, auditor independence was measured as: (1) fees paid to the auditor, and (2) audit firm tenure. Finally, this study extends the prior literature by studying the interaction effects of independent audit committee member characteristics and auditor independence on financial restatements. This interaction effect is important because the external auditor and the audit committee are regarded vital governance mechanisms that interact and exchange dialogue in the performance of their respective oversight of the financial reporting process. Prior research has not investigated this important interaction effect. The sample of the study comprises 69 U.S. publicly listed companies that announced their restatement from 1 January 2001 to 31 December 2002. These companies were matched with 69 non-restatement companies based on industry and size. The data for the study is derived from SEC filings such as Form 10-K and DEF 14A, and Compustat. The univariate results show that compared to restatement firms, non-restatement firms generally have effective audit committee characteristics. The audit committees of non-restatement firms have members who are experts, diligent, reputable and appropriately compensated. They also pay lower non-audit services and total fees, and have audit firms with longer tenure. The multivariate results show that after controlling for other governance structures and firm specific non-governance variables, the likelihood of financial restatements is related to independent audit committee member characteristics and auditor independence. Specifically, the likelihood of financial restatements decreases when independent audit committee members are: (1) experts, (2) experts and diligent, (3) reputable, (4) experts, diligent and reputable, and (5) appropriately compensated. The audit committee member tenure variable is insignificant. In relation to the auditor independence variables, the multivariate results show that the likelihood of financial restatements increases when the non-audit services and total fees generated by the client are higher. On the other hand, the likelihood of financial restatements decreases when audit firm tenure is longer. The empirical results of this study suggest that independent audit committees are more effective overseers of the corporate financial reporting and auditing processes when: they comprise majority experts, they meet regularly, their members are reputable, and audit committee members are appropriately compensated. On the other hand, external auditors are not deemed to be effective overseers of the corporate financial reporting process when the non-audit services and total fees generated by the client are higher but are effective when audit firm tenure is long. The results support the SEC's concerns regarding the provision of non-audit services impairing auditor independence. The results also support the Sarbanes-Oxley Act of 2002 which under Section 201 prohibits external auditors from providing certain non-audit services to its audit client. Overall, these results support the regulatory efforts to increase the quality of financial reporting by enhancing the corporate governance process related to audit committees and auditor independence. However, the results do not support calls to limit the tenure of the auditor. The results of the multivariate interaction effects suggest that, after controlling for other governance structures and firm specific non-governance variables, when the non-audit services and total fees generated by the client are higher, the likelihood of financial restatements increases under conditions when the audit committee is not effective (a non expert audit committee, an audit committee that does not meet regularly, an audit committee whose members are not reputable or an audit committee that is not appropriately compensated). The implication of this result is that it provides evidence of conditions under which restatements take place. Knowledge of such conditions could aid regulators further improve the financial reporting process and corporate governance. This knowledge will support regulators in revising policies that ensure audit committee members are not only independent but also comprise other critical qualities. These improvements to the audit committee coupled with the existing regulations on the provision of non-audit services suggest a company's governance will be more effective. Overall, the results extend current knowledge in the sparse but growing literature related to financial restatements and corporate governance, and extend our understanding of the effectiveness and interaction of governance mechanisms in reducing financial restatements.

The Effects of Corporate Governance Experience and Financial Reporting and Audit Knowledge on Audit Committee Members' Judgments

Author : Todd DeZoort
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (137 download)

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Book Synopsis The Effects of Corporate Governance Experience and Financial Reporting and Audit Knowledge on Audit Committee Members' Judgments by : Todd DeZoort

Download or read book The Effects of Corporate Governance Experience and Financial Reporting and Audit Knowledge on Audit Committee Members' Judgments written by Todd DeZoort and published by . This book was released on 2008 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Interest in audit committees as part of overall corporate governance has increased dramatically in recent years, with a specific emphasis on member independence, experience, and knowledge. This paper reports the results of a study investigating whether audit committee members' corporate governance experience and financial reporting and audit knowledge affect their judgments in auditor-corporate management conflict situations. A sample of 68 audit committee members completed an accounting policy dispute case and several knowledge and ability tests. The results indicate that, as expected, greater independent director experience and greater audit knowledge was associated with higher audit committee member support for an auditor who advocated a "substance over form" approach in the dispute with client management. Conversely, concurrent experience as a board director and a senior member of management was associated with increased support for management. Collectively, these findings have a number of implications for practice and research. The results provide justification for calls that audit committees be composed completely of independent directors. The results also support auditor concerns that varying knowledge levels lead to systematic differences in audit committee member judgments in disputes between auditors and management.

Audit Committee Characteristics and Financial Misstatement

Author : Lawrence Abbott
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (137 download)

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Book Synopsis Audit Committee Characteristics and Financial Misstatement by : Lawrence Abbott

Download or read book Audit Committee Characteristics and Financial Misstatement written by Lawrence Abbott and published by . This book was released on 2002 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study addresses the impact of certain audit committee characteristics identified by the Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees (BRC) on the likelihood of financial misstatement. We examine 41 firms which issued fraudulent reports and 88 firms which restated annual results (without allegations of fraud) in the period 1991-1999, together with matched pairs control groups of similar size, exchange listing, industry and auditor type. We find that the independence of the audit committee and whether the committee meets at least four times per year exhibit a significant and negative association with the occurrence of financial reporting restatements. We also document a significant positive association between an audit committee that lacks a member with financial expertise and the occurrence of financial reporting restatements. However, only audit committee independence and the lack of financial expertise exhibit a negative (positive) association with financial reporting fraud. Our results underscore the importance of the BRC's first two recommendations, both of which concern audit committee independence. Our results also highlight the need for financial expertise as a means of strengthening the monitoring and oversight role that the audit committee plays in the financial reporting process.

Evidence on the Relation Between Corporate Governance Characteristics and the Quality of Financial Reporting

Author : Arthur Levitt
Publisher :
ISBN 13 :
Total Pages : 38 pages
Book Rating : 4.L/5 ( download)

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Book Synopsis Evidence on the Relation Between Corporate Governance Characteristics and the Quality of Financial Reporting by : Arthur Levitt

Download or read book Evidence on the Relation Between Corporate Governance Characteristics and the Quality of Financial Reporting written by Arthur Levitt and published by . This book was released on with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Audit Committee Gender Diversity and Financial Reporting

Author : Javad Oradi
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Audit Committee Gender Diversity and Financial Reporting by : Javad Oradi

Download or read book Audit Committee Gender Diversity and Financial Reporting written by Javad Oradi and published by . This book was released on 2020 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Purpose - The purpose of this paper is to investigate the association between gender diversity on the audit committees and the incidence of financial restatements.Design/methodology/approach - Using a sample of 683 firm-year observations from Iranian listed companies for the period 2013 to 2017, this paper uses a logistic regression model to examine a research hypothesis related to the association between the presence of female members on the audit committee and the incidence of financial restatements.Findings - After controlling for other restatement-related factors, the authors find that the presence of at least one female member on audit committees reduces the likelihood of the incidence of financial restatements. Robustness tests also confirmed this result. Moreover, the additional analyses show that independent and financial expert female members on audit committees are more strongly associated with a reduction in financial restatements. Further, the results suggest that the presence of female members on the audit committee can increase the likelihood of hiring higher quality auditors. Generally, the findings are consistent with the literature on gender diversity which suggests that women perform better in a monitoring role, are more conservative and make more ethical decisions. Practical implications - The findings of this study could help with the understanding of broader participation of female directors on company boards and subgroups such as the audit committee, and of the improvement in corporate governance. Moreover, the findings can be of particular interest to monitoring authorities and policy makers in developing countries and send positive signals to them regarding the recommendation or requirement of gender diversity as a part of corporate governance mechanisms. Originality/value - The present study contributes to the extant literature by providing empirical evidence on the effect of audit committee gender diversity on financial restatements. Furthermore, this study provides evidence on the more effective oversight and greater ability of independent and financial expert female directors, which has been significantly disregarded in the previous studies.

The Governance Role of Audit Committees

Author : Chaudhry Ghafran
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (137 download)

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Book Synopsis The Governance Role of Audit Committees by : Chaudhry Ghafran

Download or read book The Governance Role of Audit Committees written by Chaudhry Ghafran and published by . This book was released on 2013 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Even though audit committees have traditionally been a key component of corporate governance regulation, the last decade has witnessed a greater emphasis on audit committee regulation and a parallel intensification of academic research on the subject. This review synthesizes recent empirical research seeking to investigate various aspects of audit committees' governance role. The review is structured around current regulatory expectations of audit committees seeking to document the extent to which specific characteristics of good practice influence various components of audit committee effectiveness. It is found that larger and more independent audit committees as well as those with financial expertise are more likely to seek a higher level of external audit coverage and assurance. There is also evidence that more independent audit committees are associated with the purchase of lower levels of non-audit services from auditors, thereby seeking to preserve the independence of the external audit process. There seems a consensus that more independent audit committees and those with greater accounting/financial expertise have a positive impact on the quality of financial statements. Evidence on the stock market reaction to audit committee issues suggests that investors both welcome the presence of audit committees and react positively when members are appointed with relevant expertise. It is also found that internal auditors view certain audit committee characteristics, specifically independence, expertise and frequency of meetings, as leading to more effective audit committee performance. In summary, therefore, this review documents a significant amount of evidence offering support to current regulations concerning the desired characteristics of audit committees.

The Effects of Accounting Expertise of Board Committees on the Short- and Long-term Consequences of Financial Restatements

Author : Somnath Das
Publisher :
ISBN 13 :
Total Pages : 50 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis The Effects of Accounting Expertise of Board Committees on the Short- and Long-term Consequences of Financial Restatements by : Somnath Das

Download or read book The Effects of Accounting Expertise of Board Committees on the Short- and Long-term Consequences of Financial Restatements written by Somnath Das and published by . This book was released on 2020 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using financial restatements as the contextual setting, we examine whether the accounting expertise of board committees affects the consequences of financial reporting quality. We analyze both short-term consequences--stock market reactions surrounding restatement announcements, and long-term consequences--the incidence of SEC Accounting and Auditing Enforcement Actions (AAERs), and CEO and CFO turnover after restatements. Our results show that the presence of audit committee members with accounting expertise moderates the consequences of restatements, resulting in less negative stock market reactions and a lower probability of CEO turnover. In contrast, the audit committee's non-accounting financial expertise increases the likelihood of AAERs. For the compensation committee, we find that accounting expertise reduces the probability of CEO turnover, while non-accounting financial expertise exacerbates the negative stock returns around restatement announcements and increases the probability of AAER. In the post Sarbanes Oxley Act (SOX) period, restatements have resulted in less severe consequences while companies have increased their propensity to hire accounting experts. on the board. Correspondingly, we document that the moderating effects of accounting expertise become less significant, in part because the moderating effects are offset by the changed investor expectations. Overall, our results suggest that accounting expertise of board committees helps mitigate the negative consequences of restatements.

The Triangular Relationship Between Audit Committee Characteristics, Audit Inputs, and Financial Reporting Quality

Author : Jae B. Kim
Publisher :
ISBN 13 :
Total Pages : 51 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis The Triangular Relationship Between Audit Committee Characteristics, Audit Inputs, and Financial Reporting Quality by : Jae B. Kim

Download or read book The Triangular Relationship Between Audit Committee Characteristics, Audit Inputs, and Financial Reporting Quality written by Jae B. Kim and published by . This book was released on 2016 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using the exogenous reforms to audit committees mandated by the Sarbanes-Oxley Act of 2002 and a difference-in-difference approach, we examine the impact of changes in audit committee attributes (financial expertise, size, and independence) on firms' audit inputs and financial reporting quality. Firms directly affected by the reforms experienced a larger improvement in audit inputs (measured by audit fees and the appointment of an industry specialist auditor) and a larger increase in financial reporting quality (measured by restatements of financial reports) relative to firms that were already compliant. Importantly, we find that the decline in restatements is not related to the improvement in audit inputs. This suggests that larger, more independent, and more competent audit committees are better able to detect misstatements or deter opportunistic reporting by management, independent of the level of audit input quality. The results therefore provide justification for the audit committee reforms.

The Lack of Consequences for Audit Committee Members Following Accounting Restatements and the Resulting Impact on Investors

Author :
Publisher :
ISBN 13 :
Total Pages : 90 pages
Book Rating : 4.:/5 (436 download)

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Book Synopsis The Lack of Consequences for Audit Committee Members Following Accounting Restatements and the Resulting Impact on Investors by :

Download or read book The Lack of Consequences for Audit Committee Members Following Accounting Restatements and the Resulting Impact on Investors written by and published by . This book was released on 2008 with total page 90 pages. Available in PDF, EPUB and Kindle. Book excerpt: Prior research has assumed that financial reporting failures indicate that individual directors have provided inferior monitoring of the reporting process and has found that directors suffer the loss of board positions following reporting failures. These penalties, however, are not uniformly applied across all outside directors. Using a sample of firms that have experienced multiple reporting failures and a matched sample of non-restating firms, I collect information on individual audit committee members and investigate whether retention on the audit committee is related to the quality of the director or to the influence of the CEO over the board of directors. I then examine whether the retention of directors on the audit committee is related to further aggressive accounting practices and to additional negative consequences for investors in the long run. I find that the retention of directors on the audit committee is positively related to the quality of the director and negatively related to CEO influence over the board for both the restating and nonrestating sample. I further find that the retention of directors on the audit committee following a reporting failure is not related to future aggressive accounting practices. Test examining other long-term consequences to investors are inconclusive. Overall, these results suggest that the labor market for directors operates in an efficient and effective manner.

Can Audit Committee Financial Expertise Increase External Auditors' Litigation Risk? The Moderating Effect of Audit Committee Independence

Download Can Audit Committee Financial Expertise Increase External Auditors' Litigation Risk? The Moderating Effect of Audit Committee Independence PDF Online Free

Author : Jillian Alderman
Publisher :
ISBN 13 :
Total Pages : 42 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Can Audit Committee Financial Expertise Increase External Auditors' Litigation Risk? The Moderating Effect of Audit Committee Independence by : Jillian Alderman

Download or read book Can Audit Committee Financial Expertise Increase External Auditors' Litigation Risk? The Moderating Effect of Audit Committee Independence written by Jillian Alderman and published by . This book was released on 2019 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: This study examines whether the perceived independence and financial expertise of audit committee members affect external auditors' exposure to legal liability. We use an experiment in which potential jurors make judgments about auditor independence and legal liability for a case involving an audit failure. We find that perceptions of audit committee independence from management are positively associated with judgments of auditor independence and negatively associated with auditor liability. However, financial expertise of audit committee members can be a double-edged sword. Our experiment finds that judgments of auditor liability are higher when the audit committee is perceived to have higher financial expertise but lower independence from management. In assessing litigation risk of current and prospective clients, auditors may want to carefully consider the independence of audit committee members from management, particularly when audit committee members have financial expertise. In the event of an audit failure, the financial expertise of non-independent audit committee members can negatively affect jurors' perceptions of auditor independence and liability.

Consequences of Financial Reporting Failure for Outside Directors

Author : Suraj Srinivasan
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis Consequences of Financial Reporting Failure for Outside Directors by : Suraj Srinivasan

Download or read book Consequences of Financial Reporting Failure for Outside Directors written by Suraj Srinivasan and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: I use a sample of 409 companies that restated their earnings from 1997 to 2001 to examine penalties for outside directors, particularly audit committee members, when their companies experience accounting restatements. Penalties from lawsuits and Securities and Exchange Commission (SEC) actions are limited. However, directors experience significant labor market penalties. In the three years after the restatement, director turnover is 48% for firms that restate earnings downward, 33% for a performance-matched sample, 28% for firms that restate upward, and only 18% for technical restatement firms. For firms that overstate earnings, the likelihood of director departure increases in restatement severity, particularly for audit committee directors. In addition, directors of these firms are no longer present in 25% of their positions on other boards. This loss is greater for audit committee members and for more severe restatements. A matched-sample analysis confirms this result. Overall, the evidence is consistent with outside directors, especially audit committee members, bearing reputational costs for financial reporting failure.

Audit Committee Characteristics and Financial Reporting Comparability

Author : Zhuoan Feng
Publisher :
ISBN 13 :
Total Pages : 99 pages
Book Rating : 4.:/5 (925 download)

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Book Synopsis Audit Committee Characteristics and Financial Reporting Comparability by : Zhuoan Feng

Download or read book Audit Committee Characteristics and Financial Reporting Comparability written by Zhuoan Feng and published by . This book was released on 2014 with total page 99 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial reporting comparability is one of the key qualitative characteristics that allows accounting information users to identify and understand similarities and differences in the financial performance of two firms. While prior studies manily focus on the role of accounting standards in the production of comparability, the role of economic agents and institutional incentives has been largely overlooked. To fill this gap, this study argues that a firm's audit committee, as an economic agent within the firm, is important in shaping financial reporting comparability because the audit committee oversees the financial reporting and disclosure process, and monitors the choice od accounting policies and principles.

Corporate Governance Determinants of Financial Restatements

Author : Ahsan Habib
Publisher :
ISBN 13 :
Total Pages : 64 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis Corporate Governance Determinants of Financial Restatements by : Ahsan Habib

Download or read book Corporate Governance Determinants of Financial Restatements written by Ahsan Habib and published by . This book was released on 2020 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper conducts a meta-analysis of 182 published archival accounting and auditing studies on the corporate governance determinants of financial restatements. We aim to provide a focused and systematic examination on various internal and external corporate governance factors that may predict financial restatements. We do so by aggregating results statistically across individual studies and correcting for statistical artefacts. Thereby, we provide findings that are much more precise than those of narrative reviews. We categorize the chosen governance variables into:(1) audit firm and audit engagement characteristics; (2) gender, board attributes, and audit committee attributes; (3) CEO related attributes; (4) ownership structure variables, and (5) external corporate governance variables and, thus, we generate a total of 37 separate corporate governance variables. Our results reveal that the governance mechanisms of Big N auditor choice, types and timeliness of audit opinions, and board independence are significantly and negatively associated with the occurrence of financial restatements. However, economic bonding between auditors and their clients, insider ownership, and firm complexity all increase the likelihood of restatements significantly. We hope that our findings will make a meaningful contribution to the literature on financial restatements and corporate governance by providing insights for regulators on the governance mechanisms that may require further scrutiny in combating the occurrence of financial restatements.

Audit Committee, Board Characteristics and Auditor Switch Decisions by Andersen's Clients

Author : Ken Y. Chen
Publisher :
ISBN 13 :
Total Pages : 39 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis Audit Committee, Board Characteristics and Auditor Switch Decisions by Andersen's Clients by : Ken Y. Chen

Download or read book Audit Committee, Board Characteristics and Auditor Switch Decisions by Andersen's Clients written by Ken Y. Chen and published by . This book was released on 2010 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using a sample of hand-collected data on 821 firms, which dismissed Arthur Andersen as their auditor between October 15, 2001 and August 31, 2002, we investigate the role of audit committees and boards of directors in the auditor switch decisions by Andersen's clients. This provides a unique setting to examine auditor choice in a situation where the auditor's reputation is clearly tarnished. We investigate the impact of (a) audit committee size, independence, activity, financial expertise; and (b) board size and board independence on the timing of dismissal and choice of successor auditors by Andersen's clients. We find that firms with more independent audit committees, audit committees with greater financial expertise, and larger and more independent boards dismissed Andersen earlier. We also find that firms with larger and more active audit committees as well as more independent boards were more likely to choose a Big 4 successor auditor. We thus contribute to the understanding of the role of audit committees and boards of directors in the auditor switch decisions.

Can Audit Committee Expertise Increase External Auditors' Litigation Risk? The Moderating Effect of Audit Committee Independence

Author : Jillian Alderman
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis Can Audit Committee Expertise Increase External Auditors' Litigation Risk? The Moderating Effect of Audit Committee Independence by : Jillian Alderman

Download or read book Can Audit Committee Expertise Increase External Auditors' Litigation Risk? The Moderating Effect of Audit Committee Independence written by Jillian Alderman and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines whether the perceived independence and financial expertise of audit committee members affect external auditors' exposure to legal liability. We use an experiment in which potential jurors make judgments about auditor independence and legal liability for a case involving an audit failure. We find that perceptions of audit committee independence from management are positively associated with judgments of auditor independence and negatively associated with auditor liability. However, financial expertise of audit committee members can be a double-edged sword. Our experiment finds that judgments of auditor liability are higher when the audit committee is perceived to have higher financial expertise but lower independence from management. In assessing litigation risk of current and prospective clients, auditors may want to carefully consider the independence of audit committee members from management, particularly when audit committee members have financial expertise. In the event of an audit failure, the financial expertise of non-independent audit committee members can negatively affect jurors' perceptions of auditor independence and liability.

The Joint Effects of Auditor and Audit Committee Tenure on Auditor Independence and Financial Reporting Quality

Author : Helen Liu
Publisher :
ISBN 13 :
Total Pages : 184 pages
Book Rating : 4.:/5 (722 download)

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Book Synopsis The Joint Effects of Auditor and Audit Committee Tenure on Auditor Independence and Financial Reporting Quality by : Helen Liu

Download or read book The Joint Effects of Auditor and Audit Committee Tenure on Auditor Independence and Financial Reporting Quality written by Helen Liu and published by . This book was released on 2010 with total page 184 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Audit Committee Characteristics and the Perceived Quality of Financial Reporting

Author : Andrew J. Felo
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (137 download)

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Book Synopsis Audit Committee Characteristics and the Perceived Quality of Financial Reporting by : Andrew J. Felo

Download or read book Audit Committee Characteristics and the Perceived Quality of Financial Reporting written by Andrew J. Felo and published by . This book was released on 2003 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we empirically examine the relationship between two audit committee characteristics - the composition (expertise and independence) and size of the audit committee - and the quality of financial reporting. We show that after controlling for firm size, board composition, a measure of management's commitment to transparency (the existence of an ethics program) and institutional ownership, the percentage of audit committee members having expertise in accounting or financial management is positively related to financial reporting quality. We also find some evidence of a positive relationship between the size of the audit committee and financial reporting quality. However, audit committee independence is not related to financial reporting quality. We also verify that our results are robust across different measures of financial reporting quality. Our results suggest that mandating greater expertise on audit committees rather than simply requiring one expert on the audit committee may be beneficial to investors. In addition, our results also provide weak support for the recommendation of the Blue Ribbon Committee that firms devote significant directorial resources to the audit committee. Given the prior evidence of a negative relationship between financial reporting quality and cost of capital, firms could improve their reporting quality by appropriately structuring their audit committees, thus reducing their cost of capital.